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By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 12th June 2020*

If you are a homeowner aged 55 or over and are wondering if you should release some equity from your property, then you’ve come to the right place. We get lots of enquiries from people who want to know whether a lifetime mortgage is a good idea and what the alternatives might be.

In this guide, we have gathered all the key information you need to know about lifetime mortgages, their advantages and the possible pitfalls, including:

The advisors we work with are regulated by The Financial Conduct Authority and so you will be dealing with a highly trained person that adheres to strict rules of conduct.

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Lifetime mortgage UK – pros and cons

Is a lifetime mortgage a good idea? As is the case with any mortgage product, taking one out is a huge financial decision – so to help you decide whether this is the right option for you, we’ve listed the advantages and potential drawbacks of lifetime mortgages in the table below…

Advantages of a lifetime mortgage Disadvantages of a lifetime mortgage
Usually you don’t have to make any repayments while you’re alive If you’re not making any repayments, your mortgage debt can increase quickly over time
You have the right to remain in your property until you need to move into long-term care, as long as the property remains your main residence A lifetime mortgage can be more expensive in comparison to an ordinary mortgage
Most lifetime mortgages have a “no negative equity guarantee” so if your property is sold and the amount left isn’t enough to repay the outstanding loan, neither you or your estate will be liable to pay If you release equity from your home, you might not be able to rely on your property for money you need later in your retirement such as long term care
Most providers let you take out smaller loans as and when you need to, rather than one big lump sum which could mean you pay less interest If you want to downsize later on you might not have enough equity in your home so you might need to repay some of your mortgage
The borrower stands to benefit from any future increases in their property’s value The amount of money you receive from a lifetime mortgage might affect your entitlement to state benefits
Age restrictions can be less stringent. It may be possible to take out a lifetime mortgage up to the age of 95 There may be less for you to pass onto your family as an inheritance

If you’re concerned that any of the drawbacks above might apply to you, get in touch and the expert brokers we work with will carry out a full risk assessment and suggest ways that you can safeguard yourself.

There’s always the chance that none of these potential pitfalls apply to you, and even if they do, there could be other alternatives to consider.

Lifetime mortgage alternatives

Lifetime mortgages won’t be a viable option for everyone, but the good news is that there may be other alternatives to consider, such as home reversion plans.

Home reversion plan vs lifetime mortgage

A home reversion plan is an alternative product some homeowners choose to apply for rather than a lifetime mortgage. But what are the differences between the two?

The table below highlights what sets these two product types apart…

Home Reversion Plan Lifetime Mortgage
You sell part or all of your home to a home reversion provider in return for a lump sum or regular payments A lifetime mortgage is secured against your property and you pay this back from the sale of your property if you go into care or pass away
You can ring-fence a percentage of your property for later use, possibly for inheritance You can ring-fence a percentage of your property for later use, possibly for inheritance
The percentage of the property you own will always remain the same regardless of any change in the property value You can choose to pay back your loan in installments to reduce the interest you pay. Any remaining balance of the loan will be paid for from the sale of your property

Which should I choose?

Home reversion plans are less popular than lifetime mortgages and many brokers may recommend a lifetime product as the way to go, but if you’d like to know more on home reversion, the advisors we work with can give you further information and outline the benefits of taking a lifetime mortgage over one of these deals. 

Other alternatives to lifetime mortgages

If your goal is to raise extra capital in your retirement, lifetime mortgages and home reversion plans might not be the only courses of action. Alternatives include:

  • Downsizing (moving to a smaller property)
  • Claiming benefits (E.g. local authority home improvement grants)
  • Taking in a lodger (always seek consent from your lender)
  • Other investments

Eligibility for lifetime mortgages

In order to determine whether a lifetime mortgage is the best option for you, it’s worth considering whether you would meet the eligibility requirements for one. The closer you meet a mortgage provider’s lending criteria, the more likely they are to offer you their most favourable rates.

Many lifetime mortgage lenders use stringent eligibility checks which could include questions about…

  • What you need the money for: usually lenders provide a lower loan value (LTV) ratios for applicants who want to use the loan for investments although there are specialist lenders who will consider this
  • How much equity you have: Usually the more the better
  • Your affordability: The lender must ensure that your loan is affordable for you. They may look at your income which could come from pensions, savings or a job
  • Any credit issue you may have: A good credit history always helps but with each lender what is perceived as “good credit” can vary depending on the date and severity of any credit issues you may have
  • Your age – Some lenders are unwilling to lend to applicants over 75, but others will stretch to 85, and a small number have no age limits at all

For more information on how each of these factors can affect your lifetime mortgage application, it’s best to talk to an advisor. 

How much could you borrow with a lifetime mortgage?

The amount you’re able to borrow could have a bearing on whether a lifetime mortgage is the right product for your needs.

A lifetime mortgage lender will want to know how much equity you own of your property and they’ll calculate this by subtracting any outstanding loan balances from the property’s current market value.

Based on this, most lenders will consider releasing up to 75-85% of the property value, with some willing to lend up to 90%. Some lenders can restrict how much they are willing to loan in certain circumstances such as the purpose for the money.

Why you should speak to an expert lifetime mortgage broker

The advisors we work with are OMA Accredited and have also undergone a London Institute of Banking & Finance (LIBF) training course which allows them to offer a 5-star service with access to whole of market mortgage brokers. 

As well as this, the experts we work with will carefully review all of the available options concerning lenders and products and can assess which one is better value and more suitable for you.

Speak to an expert about lifetime mortgages 

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry for a free, no-obligation chat.

We’ll match you with one of the brokers we work with, ensuring that they have experience of helping customers with similar circumstances.

Updated: 12th June 2020
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

Find out more about lifetime mortgages

Lifetime Mortgages